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Accounting
SEC Settles Accounting Charges with Freddie Mac
The company is hit with a $50 million penalty, and four ex-execs draw civil penalties for deceiving
investors.
Stephen Taub - CFO.com | US
September 27, 2007

The Securities and Exchange Commission on Thursday settled charges that Freddie
Mac and four of its former executives, including its one-time CFO, perpetrated a
multibillion-dollar accounting fraud.
The four charged were David Glenn, president, chief operating officer, and vice
chairman of the board; Vaughn Clarke, CFO; Robert Dean, senior vice president in
the Market Risk Oversight department, and Nazir Dossani, senior vice
president/investments in the Funding and Investments division.
Freddie Mac agreed to pay a $50 million penalty, which is
expected to be distributed to injured investors through a Fair
Fund. Glenn, Clarke, Dossani, and Dean agreed respectively
to pay civil penalties of $250,000, $125,000, $75,000, and
$65,000, as well as $150,000, $29,227, $61,663, and
$34,658 in disgorgement. All settled without admitting or
denying the allegations.
The SEC alleged that Freddie Mac engaged in a fraudulent
scheme that deceived investors about its true performance,
profitability, and growth trends. According to the complaint,
Freddie Mac misreported its net income in 2000, 2001, and 2002 by 30.5 percent, 23.9 percent, and
42.9 percent, respectively.
Also, the SEC alleged, Freddie Macs senior management "exerted consistent pressure" to have the
company report smooth and dependable earnings growth in order to present investors with the image
of a company that would continue to generate predictable and growing earnings.
The SEC noted that the company's actions reflect a continuing trend. "As has been seen in so many
cases, Freddie Macs departure from proper accounting practices was the result of a corporate culture
that sought stable earnings growth at any cost," said Linda Chatman Thomsen, the SECs director of
enforcement.
In its complaint, the SEC singled out a number of violations. One was the use of certain transactions to
nullify the effects of the company's transition to compliance with a new derivatives and accounting
standard. Another alleged violation was an improper change in valuing the company's "swaptions"
portfolio at year-end 2000. A third was the improper use of derivatives to shift earnings between
periods.
The SEC also charged Freddie with the improper use of a reserve linked to the company's application of
an accounting rule for loan-origination costs.
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9/8/2008 http://www.cfo.com/article.cfm/9890277
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Page 2of 2 SEC Settles Accounting Charges with Freddie Mac - Accounting - CFO.com
9/8/2008 http://www.cfo.com/article.cfm/9890277